A home mortgage allows a consumer to purchase a home by making monthly payments rather than paying the entire cost of the house upfront. In return for this service, the homeowner is required to pay a specified interest payment each month along with the principal. Many home buyers are eager to purchase a home, and look only at the total monthly payment rather than determining how much is dedicated to the principal versus the amount reserved for interest. To understand the true cost of a home over time, buyers should take the time to calculate mortgage interest. You can calculate mortgage interest using your interest rate, loan terms, and total home cost to see how much interest you're paying each month, and how much it adds to your total costs over time.
If you calculate mortgage interest prior to signing a loan document, you are more likely to choose a loan that makes sense for your family. While most homeowners understand that they can estimates monthly payments by dividing the cost of the home by the number of months provided to pay off the loan, fewer understand how much interest can impact monthly expenses. Those who take the time to calculate mortgage interest on a monthly basis may choose a cheaper house or different type of loan to maximize affordability.
Those who already have a mortgage may find that calculating interest helps them to pay off the loan more quickly. By figuring out how much interest you are paying over the life of the loan, you may be highly motivated to double up on payments, or cut other expenses so you can put more money towards your mortgage each month. This can save you thousands of dollars over time in reduced interest expenses.
A homeowners who takes time to calculate mortgage interest may also be better prepared to refinance or switch to a different type of home loan. Those with a traditional 30-year loan may decide to switch to a 15-year loan to save on interest and pay off the house faster. Others who calculate mortgage interest may be motivated to refinance at a lower interest rate once they understand just how much interest they are paying.
Mortgage interest can also have important tax implications. Many homeowners qualify for a federal tax deduction based on home interest payments. Some states even offer state or local tax credits for home interest. Calculating mortgage interest can help taxpayers better understand their tax situation for financial planning or tax preparation purposes.